Smt. Kadigari Pushpa, Hyderabad V. ITO, Ward 10(3), Hyderabad

ITA 582/HYD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98785 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: A V RAGHURAM
• Keywords: Unexplained cash credit; Income from undisclosed sources
• Section: 44AD; 143(3); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 581/HYD/2013 ASSESSMENT YEAR: 2009-10 SRI KADIGARI NARASIMHA REDDY, HYDERABAD. PAN AJABPK 0906H VS. INCOME-TAX OFFICER, WARD 10(3), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 582/HYD/2013 ASSESSMENT YEAR: 2009-10 SRI KADIGARI PUSHPA, HYDERABAD. PAN ATNPK6877H VS. INCOME-TAX OFFICER, WARD 10(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AV RAGHURAM REVENUE BY : SHRI B. KURMI NAIDU DATE OF HEARING 26-10-2015 DATE OF PRONOUNCEMENT 30-11-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY TWO ASSESSEES ARE DI RECTED AGAINST SEPARATE ORDERS OF CIT(A)-VI, HYDERABAD, BO TH, DATED 24/01/2013 FOR THE AY 2009-10. AS THE FACTS AND ISS UES INVOLVED IN THESE APPEALS ARE COMMON, THE SAME WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, WE FIND IT CONVENIENT TO D ISPOSE OF THESE APPEALS BY WAY OF THIS COMMON ORDER. 2 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FA CTS IN CASE OF SRI KADIGARI NARASIMHA REDDY IN ITA NO. 581/HYD/2013. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND A LSO PARTNERS IN THE M/S BVM CONSTRUCTIONS FILED HIS RETURN OF INCOME DE CLARING TOTAL INCOME OF RS. 4,83,600, WHICH INCLUDES REMUNERATION OF RS. 3,00,000 AND BUSINESS PROFIT OF RS. 3,01,920 DECLARED U/S 44 AD. 3.1 THE MAIN ISSUE IN THIS CASE IS, AO NOTICED CASH DEPOSIT OF RS. 31,04,179 INTO THE BANK M/S KARUR VYSYA BANK, WHICH WAS TREATED AS UNEXPLAINED CASH CREDIT. THE ASSESSEE WAS SUMMONED U/S 131 AND SWORN STATEMENT WAS RECORDED ON 28/12/2011. THE ASS ESSEE WAS NOT ABLE TO EXPLAIN THE ABOVE CASH CREDIT AND AGREED TO SUBMIT THE SAME SEEKING MORE TIME. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 31/12/2011. 4. ON APPEAL, THE LD. CIT(A) HAS DISMISSED THE APPE AL BY OBSERVING AS UNDER: 8.4 COMING TO THE FACTS OF THE CASE,' THE APPELLANT SH OWN TO HAVE CARRIED SOME CIVIL CONTRACT WORKS AND FOR THE YEAR UNDER REFERENCE, A TURNOVER OF RS. 35,52,000/- WAS ATTRIBUTED TO SUCH WORKS, ON WHICH PROFIT WAS ESTIMATED AT RS. 3,01,920 @ 8.5% AS PER THE PR OVISIONS OF SEC. 44AD. THE OTHER INCOME ADMITTED IS REMUNERATION FR OM M/S. BVM CONSTRUCTIONS, WHERE HE IS A PARTNER. DURING THE YEAR UNDER REFERENCE, THE APPELLANT SHOWN TO HAVE MADE CERTAIN DEPOSITS INT O BANK ACCOUNT (BEARING NO. 1465172000000292) WITH KARUR VYSYA BANK, AS RA O NAGAR BRANCH, HYDERABAD, WHICH WAS QUANTIFIED AT RS. 31,04,179, AND WAS TREATED AS UNEXPLAINED FOR NOT FURNISHING THE REQUIRED INFORM ATION. THE APPELLANT'S QUESTION IS THAT WHERE THE TURNOVER RECORDED BY TH E APPELLANT, FOR FILING THE RETURN OF INCOME AS PER 44AD I.E. RS. 35,52,000, W HICH IS HIGHER THAN THE AMOUNTS REFLECTED THOUGH THE SAID BANK ACCOUNT (RS . 31,04,179), THE SAID AMOUNT CANNOT BE TREATED AS UNEXPLAINED CREDITS. T HE ANSWER WOULD BE CLEAR AND STRAIGHT IF THE QUESTION IS UNAMBIGUOUS. IN THIS CONTEXT, IT IS RELEVANT TO REFER TO THE FACT OF THE CASE THAT NOT ONLY THE ASSESSEE FAILED BEFORE THE AO TO EXPLAIN THE DEPOSITS INTO THE BAN K ACCOUNT, WITH THE HELP OF THE NEEDED AND RELEVANT INFORMATION. RELATED TO SUCH CONTRACT WORKS, BY CONNECTING SUCH ACTIVITY TO THE DEPOSITS BUT ALSO FAILED TO PROVE THE SAME BEFORE THE APPELLATE AUTHORITIES. NO RELEVANT INFO RMATION WAS FILED BEFORE THE CIT(APPEALS) TO INDICATE THAT THE ACTIVITY OF CONTRACT WORKS RELATE TO THE CASH DEPOSITS, SPECIALLY THE CASH DEPOSITS MADE IN TO THE BANK ACCOUNT, REFERRED ABOVE, EXCEPT REITERATING THE THEORETICAL EXPLANATIONS. 8.5 DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E AO HAS QUESTIONED ABOUT THE CASH DEFICIT STATEMENT OF THE APPELLANT WHICH WAS NOT ELABORATED IN DETAIL AND TIME' WAS SOUGHT FOR EXPL AINING THE SAME. THE 3 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA SAME STOOD UNEXPLAINED DURING THE APPELLATE PROCEE DINGS AS WELL, INSPITE OF THE FACT THAT CERTAIN DETAILS SUCH AS THE DETAI LS OF RECEIPTS AND PAYMENTS APPEARING IN THE BANK ACCOUNT, WERE REQUESTED FROM THE APPELLANT. COMING TO THE FACTS ON THIS ISSUE, IT HAS BEEN REVEALED T HAT APART FROM THE BANK ACCOUNT BEARING NO. 14651720000000292, THE DEPOSIT S OF WHICH THE AO HAS TREATED AS UNEXPLAINED CREDITS, THE APPELLANT MAINTAINED ANOTHER BANK ACCOUNT BEARING NO. 1465155000003830, WITH THE SAM E BANK I.E. KARUR VYSYA BANK, A.S. RAO NAGAR, HVDERABAD, IN WHICH TH E TOTALDEPOSIT OF RS. 29,71,350/- WAS MADE DURING THE YEAR INCLUDING TH E CASH DEPOSITS OF RS. 29,60,000/-. THUS, THE CASH CREDITS INTO BOTH THE ACCOUNTS, TAKE' THE TOTAL CREDITS TO RS. 60,64,179/- (RS. 31,04,179 + 29,60, 000). THIS FACT IS NOT DENIED BY THE APPELLANT AND AS SUCH IT PROVES THAT PROVISIONS OF SEC. 44AD DO NOT APPLY FOR I THE APPELLANT, FOR THE YEAR UND ER REFERENCE. SINCE THE APPELLANT FAILED TO PROVIDE ANY INFORMATION OR EVI DENCE ON CARRYING ON THE CONTRACT WORKS, THE CREDITS INTO THE BANK ACCOUNTS , CANNOT BE TERMED AS RECEIPTS OF BUSINESS AND THE SAME REPRESENT THE UN ACCOUNTED INCOME OF THE APPELLANT, BEING THE UNEXPLAINED CASH CREDITS. 8.6 HAVING EXAMINED THE NATURE OF THE DEPOSITS INT O THE BANK ACCOUNTS, WHICH DISPROVED TO BE THE CONTRACT/BUSINESS RECEIP TS, AS CLAIMED BY THE APPELLANT, THE PROFITS RELATED TO ON SUCH RECEIPTS CANNOT BE ESTIMATED ON PERCENTAGE METHOD. IN THIS CONTEXT IT IS RELEVANT TO REFER TO THE CASH DEFICIT ACCOUNT PREPARED BY THE APPELLANT, CONFIRM ING FOR BOTH THE BANK ACCOUNTS, AS PER WHICH THE PEAK OF SUCH DEFICIT/NE GATIVE CASH BALANCE AS ON 09.03.2009 STOOD AT RS. 28,05,679/-. THE ENTRIE S OF THE ACCOUNT FOR FEW OF THE RELEVANT DAYS FOR THE FY ARE AS UNDER: DATE PARTICULARS OP. BALANCE DEBIT CREDIT CL. BALANCE REMARKS 8.3.09 CASH DEPOSITS IN BANK 994,321 950,000 44,321 8.3.09 -DO- 44,321 950,000 (905,679) RS. 9,05,679 HAS NO REFERENCE 9.3.09 -DO- (905,67 9) 950,000 (1,855,679) RS. 9,50,000 HAS NO REFERENCE 9.3.09 -OD- (1,855,6 79) 950,000 (2,805,679) RS. 9,50,000 HAS NO REFERENCE THUS, IT PROVE THAT THERE ARE NO ADEQUATE RECEIPTS OF BUSINESS TO THE APPELLANT DURING THE YEAR, TO SUPPORT THE DEPOSITS , SPECIALLY THE CASH DEPOSITS IN THE BANK ACCOUNTS AND AS SUCH THE CASH DEPOSITS INTO THE SAID BANK ACCOUNTS REPRESENT THE UNEXPLAINED INCOME IN THE FORM OF UNEXPLAINED CREDITS, FOR THE YEAR UNDER REFERENCE. HOWEVER, THE QUANTUM OF SUCH CREDITS, FOUND MAY BE RESTRICTED TO THE AM OUNTS OF RS. 31,04,179 BASED ON THE PEAK OF THE DEFICIT CASH BALANCES AS REFERRED. THUS THE ADDITION OF RS. 31,04,179 TREATING THE CASH DEPOSI TS INTO BANK ACCOUNTS, AS UNEXPLAINED CREDITS IS SUSTAINED THE APPELLANT FAI LS ON THIS GROUND OF APPEAL. 5. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS: 4 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS, ILLEGAL AND UNSUSTAINABLE IN LAW. 2. THE CIT(A) ERRED IN SUSTAINING THE ADDITION OF RS.31,04,179 MADE BY THE AO AS UNEXPLAINED CASH CREDITS. THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT IN HIS INDIVIDUAL STATUS HAD HANDLED ONL Y SMALL MISCELLANEOUS WORKS AND IT IS NOT PRACTICAL TO HAVE CONTRACTS. F OR SUCH WORKS. 3. THE FINDING OF THE CIT(A) THAT THE DEPOSITS IN THE BANK ACCOUNTS OF THE APPELLANT DOES NOT RELATE TO CONTRACT RECEIPTS BUT IS UNACCOUNTED INCOME AND THEREFORE THERE IS NO NEED OF ESTIMATION OF IN COME IS INCORRECT AND UNSUSTAINABLE ON THE FACTS OF THE CASE. 4. THE CIT(A) ERRED IN HOLDING THAT THE CREDITS IN THE BANK ACCOUNTS OF APPELLANT EXCEEDED RS. 40 LAKHS AND THEREFORE THE PROVISIONS OF SECTION 44AD OF THE I.T. ACT WOULD NOT APPLY. 5. THE FINDINGS OF THE CIT(A) WITH RESPECT TO FURN ISHING OF INFORMATION BEFORE THE AO AND SO ALSO BEFORE HIM, IS FACTUALLY INCORRECT. THE CIT(A) HAD CONVENIENTLY TWISTED THE FACTS TO SUIT HIS CON VENIENCE WHILE GIVING ABOVE FINDINGS WHICH ARE FAR FROM TRUE. 6. LD. AR SUBMITTED THAT THE ASSESSEE IS IN THE SMA LL CIVIL CONSTRUCTION BUSINESS AND NOT ABLE TO MAINTAIN BOOK S AS WELL AS ABLE TO MAINTAIN SMALL CONTRACTS, WHICH IS PRACTICALLY D IFFICULT IN THIS LINE OF BUSINESS. HE SUBMITTED THAT THE UNEXPLAINED CASH IS NOTHING BUT THE CASH RECEIPTS FROM THE CIVIL CONSTRUCTION BUSINESS CARRIED ON BY THE ASSESSEE. LD. AR ALSO SUBMITTED THAT THE CIT(A) WAS WRONG IN HOLDING THAT THE PROVISIONS OF SECTION 44AD WOULD NOT APPLY WHEN THE CASH DEPOSIT EXCEEDS RS. 40 LAKH. 7. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER O F CIT(A). 8. HEARD ARGUMENTS OF BOTH THE SIDES AND PERUSED TH E MATERIAL ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES . THERE IS NO DOUBT THAT THE ASSESSEE IS ENGAGED IN THE SMALL CIVIL CON STRUCTION BUSINESS AND MAY HAVE RECEIVED THE PAYMENTS THROUGH CASH. TH ERE IS NO DISPUTE THAT ASSESSEE HAS OFFERED THE CIVIL CONSTRU CTION BUSINESS U/S 44AD. 8.1 ON THE OTHER HAND, CIT(A) ESTABLISHED DURING TH E APPELLATE PROCEEDINGS THAT THE CASH DEPOSITS WERE RS. 60,64,1 79 IN THE SAME YEAR. THE ASSESSEE WAS HOLDING ANOTHER ACCOUNT WITH THE SAME BANK FOR WHICH THE ASSESSEE FAILED TO ELABORATE OR EXPLA IN THIS FINDINGS. 5 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA THIS FINDING OF THE CIT(A) WAS NOT CORRECT SINCE TH E AO HIMSELF PREPARED THE CASH DEFICIT STATEMENT CONSIDERING TWO BANK ACCOUNTS OF THE ASSESSEE. HE HIMSELF CONFIRMED THE SAME IN THE NEXT PARA NO. 8.6. THE VIEWS OF THE CIT(A) IS NOT CONSIDERED FOR FURTHER DISCUSSION OF THIS MATTER. 8.2 AO HAD PREPARED THE CASH DEFICIT STATEMENT. HE HAD CONSIDERED ONLY THE PEAK DEPOSIT FOR ADDITION, NARRATING AS H AS NO REFERENCE. AO HAD COMPLETELY OVERLOOKED THE TYPE OF BUSINESS IN W HICH ASSESSEE IS DEALING WITH. ASSESSEE HAD DECLARED HIS INCOME ON E STIMATION BASIS @ 8.5%. THE GROSS RECEIPT OF THE BUSINESS WAS RS. 3 5,52,000/-. AO ALSO TOTALLY IGNORED THE FACT THAT ASSESSEE ALSO WI THDRAWS CASH REGULARLY. THE CLOSING BALANCES IN THE BANK ACCOUNT S REACHING THE MINIMUM LEVEL SHOWS THAT THE ASSESSEE UTILIZES THE SAME FOR RUNNING BUSINESS. 8.3 THE STATUTES ALLOWS AND GIVES BENEFITS TO THE S MALL BUSINESS PEOPLE LIKE THE ASSESSEE TO ESTIMATE THEIR INCOME S O THAT THEY FULFILL THE STATUTORY OBLIGATION OF TAXATION AND THEY ALSO ENJOY THE BENEFITS LIKE, THEY DONT HAVE TO MAINTAIN BOOKS OF ACCOUNT AS STIPULATED U/S 44AA, THEY ARE NOT SUBJECT TO PAYMENT OF ADVANCE TA X UNDER THE PROVISIONS OF CHAPTER XVII C. 8.4 AS FAR AS THE CASH DEPOSITS IN THE BANK ARE CON CERNED, WE HAVE NOTICED THAT THE ASSESSEE HAS GROSS RECEIPTS OF RS. 35,52,000/- FROM THE CONSTRUCTION BUSINESS, WHICH WAS NOT DOUBTED BY THE TAX AUTHORITIES. IN THIS LINE OF BUSINESS, CONTRACTORS DO GET ADVANCES TO EXECUTE THE WORKS UNDERTAKEN BY THEM. AO/CIT(A) HAD TAKEN THE CASH DEFICIT METHOD TO ARRIVE THE UNDISCLOSED INCOME. TH IS IS NOT THE RIGHT METHOD. THEY SHOULD HAVE INVESTIGATED WHETHER ASSE SSEE RETAINS THE DEPOSITS FOR LONG PERIOD AS UNUTILIZED. ON ANALYZIN G THE BANK STATEMENT, WE FIND THAT FOLLOWING THE DEPOSITS, ASS ESSEE ALSO MADE SEVERAL WITHDRAWALS BOTH BY CHEQUE AS WELL AS BY CA SH. EVEN TO THE EXTENT OF RS. 15 LAKHS IN A DAY. IN THE CIVIL BUSIN ESS CONTRACT, THEY HAVE TO MAKE PAYMENT FOR LABOUR AND MATERIALS INVAR IABLY BY CASH. 6 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA 8.5 THE CASH DEPOSIT AS PER PEAK DEFICIT CASH BALAN CE STOOD AS ON 09/03/09 WAS RS. 28,05,679/-. IT REDUCES TO RS. 8,8 0,000/- BY 20/03/09. SUBSEQUENTLY, THERE WAS CASH WITHDRAWALS AS WELL. TAX AUTHORITIES ARE GOING BY ONE SIDE OF ACCOUNTING AND COMPLETELY OVERLOOKING THE OTHER SIDE. CONSIDERING THE GROSS R ECEIPTS OF THE BUSINESS AND PEAK DEFICIT CASH BALANCE, WE REJECT T HE METHOD ADOPT BY THE AO AND CONSIDER THAT THE CASH DEPOSITS WERE MADE ONLY FOR THE BUSINESS AND FURTHER UTILIZED ONLY FOR THE BUSINESS . 8.6 THERE ARE CONDITIONS FOR THE APPLICABILITY OF S ECTION 68 ARE: I) THE EXISTENCE OF BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE HIMSELF. II) CREDIT ENTRY IN THE BOOKS OF ACCOUNT AND III) THE ABSENCE OF A SATISFACTORY EXPLANATION BY THE ASSESSEE ABOUT THE NATURE AND SOURCE OF THE SUM CREDITED. 8.7 THE FIRST CONDITION IS THAT ASSESSEE SHOULD MAI NTAIN THE BOOKS OF ACCOUNT. IN THE PRESENT, CASE ASSESSEE ESTIMATES THE INCOME AND HENCE, THERE IS NO NEED TO MAINTAIN BOOKS OF ACCOUN T. IT FAILS IN THE FIRST CONDITION ITSELF. THE BANK STATEMENT IS NOT T HE BOOKS OF ACCOUNT. NOT NECESSARILY THE GROSS RECEIPTS ALONE SHOULD BE CREDITED IN THE BANK PASSBOOK, IN THE BUSINESS, THEY ALSO GET ADVAN CES FOR FUTURE CONTRACTS AND ASSESSEE GETS THE BENEFIT OF DOUBT B ECAUSE OF THE SMALL SCALE BUSINESS AND ESTIMATION OF PROFIT U/S 4 4AD. 9. IN VIEW OF THE ABOVE OBSERVATIONS, WE SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE APPEAL OF ASSESSEE. 9. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 7 ITA NOS. 581 & 582/HYD/2013 SRI KADIGARI NARASIMHA REDDY & SMT. PUSHPA ITA NO. 582/HYD/2013 10. AS THE FACTS AND GROUNDS IN THIS APPEAL ARE MAT ERIALLY IDENTICAL TO THAT OF ITA NO. 581/HYD/2013, FOLLOWING THE CONC LUSIONS DRAWN THEREIN WE ALLOW THE APPEAL OF THE ASSESSEE. 11. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERA TION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2015 KV COPY TO:- 1) SRI KADIGARI NARASIMHA REDDY, 2) SMT. KADIGARI PUSHPA, C/O K. VASANTKUMAR & A.V. RAGHURAM, ADVOCATES, 610, 6 TH FLOOR, BABHUKHAN ESTATE, BASHEERBAGH, HYDERABAD. 3) ITO, WARD 10(3), 5 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD 4) CIT(A) VI, HYDERABAD 5) CIT-V, HYDERABAD 6) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.